Saturday, September 24, 2005

O'Reilly, Gas, and Milk Prices

Bill O'Reilly is getting a lot of well deserved flack for having said this on the air about gas prices and "gouging":
One thing struck me: after all the experts we've talked with, after all the research we've done, we still can't find out who exactly sets the price of a gallon of gasoline. Which human being in America does that?

Every time I ask who sets the price I get "the market", "the Merc", "OPEC", and on and on. Well it's all B.S. Somebody tells your local gas station owner exactly what to charge. Somebody does that.
There's a great point-by-point response here:
No, Bill. Nobody does that. Really. The owners of gasoline stations each price their product individually and independently. There is no single person who sets the price of gasoline. There are thousands and thousands of gas station owners who each do the job for their own station.

Have you noticed that different grocery stores charge different prices for a gallon of milk? Do you think it's more likely that there's a powerful and secretive Milk Pricing Czar telling each individual store what its price should must be, or more likely that the stores are setting their prices on their own?

If you can believe it for milk, isn't it plausible for gasoline?

Let me ask it another way, Bill. Exactly what sort of punishment is meted out to those who defy the Gasoline Pricing Czar? How exactly does the Czar maintain control over all those gas stations?
That seems like a great argument, doesn't it? Intuitively, it just makes sense. How could somebody not find it convincing?

There's only one teensy little problem, which is that there actually is a powerful and secretive Milk Pricing Czar telling stores what their milk price must be. Here in California we have a statewide "milk marketing program" that explicitly sets the wholesale price for a wide variety of dairy products and prohibits retailers from "selling below cost". Thus, every retail location in california has a legal minimum price they must charge for milk. They can charge more if they like, but they can't charge less. This is why whenever stores offer general promotional discounts you'll see "except dairy products" somewhere in the fine print. This is also why you find "day-old bread" sold at a discount but milk that approaches its expiration date has to be sold at the full price or poured down the drain - it never goes on sale.

Given that the range of legal milk prices is restricted by a specific organization, I don't find it all that surprising that somebody would believe gas prices must be too.


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